Industries

Definition of Industries

• Industry groupings are usually built on SIC codes
• We’ll use a couple of examples: Fama-French 12 industries and Fama-French 48 industries
• The mapping SIC code \(\mapsto\) industry can be found on French’s website
• Here are the 12 industries:

Dummy variables

• We can use categorical variables in numerical models by creating dummy variables.
• We create a dummy variable for each industry defined as: =1 if the firm is in the industry and =0 otherwise.
• If we include dummy variables in a linear regression, we allow each industry to have a different intercept.

Example